Tax Deal Reached

Thursday night, Senate Majority Leader Harry Reid (D-NV) released the tax bill to be taken up by the Senate and probably voted on tomorrow (Monday). The expansive tax bill includes the compromise reached by Congressional leaders and President Obama this week. The bill will temporarily extend the 2001 and 2003 tax cuts, keeping current rates for all income levels for an additional two years. Also of note are two year extensions (through 2012) of:

A provision in the bill would set the estate tax exemption at $5 million per person and $10 million per couple with a top rate of 35% for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount would be indexed beginning in 2012. The estate tax rate would be retroactively effective January 1, 2010, although it allows for an exception for 2010 to choose no estate tax and a modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011.

The deal includes allowing certain tax extenders that expired this year to continue through 2011, including credits for energy-efficient homes and appliances, deductions for school teachers, deduction of state and local sales taxes, limited tax-free distributions from IRAs and the research and development (R&D) credit.

The bill includes an extension for unemployment insurance up to 13 months. Probably more noteworthy, the bill includes a payroll tax rollback. Employees currently pay a 6.2% Social Security tax and self-employed individuals pay a 12.4% tax on wages up to $106,800. This provision lowers the tax by two percentage points (to 4.2% and 10.4% respectively).

And, don’t forget to tune into our CHRISTMAS TAX SHOW next Sunday at 11am ET to get great tax advice and find out how the new tax deal will affect you!

The Stock Market is Up 45 Percent Since President Obama Took Office (55 percent for the S&P)

But is the underlying fundamental value really there? I think there are two ways to measure value: what someone will pay and whether corporate profits are up. Investors are paying a pretty penny for company stock these days, but corporate profits are at their highest level ever. The question is why are profits at record levels? Is it true business improvements, innovation and inspiration causing those profits? Or, are companies continuing to fudge the numbers?

Trillion lost in Home Value Since 2006

In a report released today, Zillow says US homes are expected to lose an additional 63 percent more in value this year over 2009-to the tune of $1.7 trillion.

This brings the total loss since the market peaked in June 2006 to $9 trillion. To put this in perspective, $9 trillion is:

12 times the cost of the war in Iraq

900 times the value of the most expensive home in the world

A little over 9 times the GDP of Australia.

Not surprisingly, the National Association of Realtors vigorously contests these numbers. They don’t want you thinking your home isn’t worth that much – or if you’re buying, they don’t want you thinking home values are still falling, or you won’t step up and buy a property. I’ll publish their rebuttal tomorrow on my CBS MoneyWatch.com Home Equity Blog.

Unemployment Numbers Fall (A Little) To 421,000

Applications for jobless benefits decreased to 421,000, compared with the median forecast of economists surveyed by Bloomberg News for 425,000 new claims. Labor Department figures showed. The four-week moving average, a less-volatile measure, dropped to the lowest level in more than two years.

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Definitioner

Tax Exemption

You may take a Tax Exemption, from your adjusted gross income for yourself, your spouse, and any dependents. The tax exemption basically excludes money from taxation.

Social Security

Social Security provides retirement benefits, disability income, and Medicare for working individuals and their spouses. Under the Social Security Act of 1935, the government established social security and created the Social Security Administration to administer the program.

Interest

Interest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.

Discount

Newly-issued bonds are typically sold at some sort of Discount. So a bond that has a face value of $1,000 and sells for $925 has a $75 discount. When interest rates rise, bonds are discounted more because you need a less expensive bond to achieve the same interest rate.

Bond

A Bond is a government's (federal or municipal) or a corporation's obligation to repay you your principal plus a certain amount of interest over a fixed period of time.